425: Focus Impact BH3 Acquisition Co. to Merge with XCF Global Capital, Aiming to Lead Sustainable Aviation Fuel Production

Focus Impact BH3 Acquisition Co. (BHAC) has announced a business combination with XCF Global Capital to create a publicly-listed sustainable aviation fuel (SAF) producer.

Summary

• Focus Impact BH3 Acquisition Co. (BHAC) has entered into a Business Combination Agreement with XCF Global Capital, Inc.
• The merger will result in a new publicly-traded company focused on sustainable aviation fuel (SAF) production.
• XCF intends to become a leading SAF producer in North America.
• The aviation industry contributes significantly to carbon emissions, and SAF offers a potential solution by reducing emissions up to 80% compared to traditional jet fuel.
• XCF has signed a definitive agreement to acquire New Rise Renewables, which owns a plant in Reno, Nevada, expected to be in production in 2024 with 38 million gallons of annual capacity.
• Three additional sites are planned for production by 2028, bringing the total capacity to over 150 million gallons annually.
• The US government has set a target of 3 billion gallons of SAF consumption by 2030.
• XCF's Reno facility is expected to produce 13 million gallons of SAF in 2024, generating $156 million in revenue and $84 million in EBITDA.
• In 2025, the Reno plant is projected to generate $477 million in revenue and $263 million in EBITDA at a stabilized production level of 38 million gallons.
• The business combination values XCF at a pre-transaction equity value of approximately $1.5 billion and reflects an expected pro forma enterprise value for the combined company of approximately $1.8 billion.
• The transaction is expected to close in the second half of 2024, pending regulatory review and shareholder approval.

Sentiment

Score: 8

Explanation: The document presents a positive outlook for the business combination and XCF's future prospects in the SAF market. The company has a clear growth strategy, secured partnerships, and is operating in a sector with strong tailwinds.

Positives

• The merger creates a pure-play, publicly-listed SAF producer, offering investors direct exposure to the growing SAF market.
• SAF offers a significant reduction in carbon emissions compared to traditional jet fuel, addressing a critical environmental concern.
• XCF has secured a definitive agreement to acquire New Rise Renewables, providing an existing production facility in Reno, Nevada.
• The Reno plant is expected to be operational in 2024, generating revenue and EBITDA in the near term.
• XCF has a pipeline of additional sites planned for SAF production, increasing capacity to over 150 million gallons by 2028.
• XCF has a long-term agreement with a Fortune 50 company for feedstock and offtake, providing cash flow visibility.
• The company will benefit from government tax credits and lower-cost financing programs.
• XCF has a versatile feedstock base, allowing it to adapt to market conditions and lower supply costs.
• XCF's and New Rise's major shareholders are rolling over 100% of their ownership into the combined company, demonstrating confidence in the future.

Negatives

• The transaction is conditioned on the consummation of the New Rise acquisition by XCF, introducing potential risk if the acquisition is not completed.
• The company is in the early stages of SAF production, and there are inherent risks associated with scaling up operations.
• The company is unable to quantify certain amounts that would be required to be included in the most directly comparable GAAP financial measures for projected EBITDA in future periods without unreasonable effort, and therefore no reconciliation of forward-looking EBITDA is included.

Risks

• Changes in domestic and foreign business, market, financial, political, and legal conditions could impact the business.
• Redemptions by Focus Impact BH3's public stockholders could reduce the cash available for the business combination.
• The termination of negotiations and agreements related to the business combination or the New Rise acquisitions could occur.
• Legal proceedings could be instituted against BHAC, XCF, NewCo, or others.
• Required regulatory approvals may not be obtained, may be delayed, or may be subject to unanticipated conditions.
• Stockholder approval may not be obtained.
• Changes to the proposed structure of the transactions may be required.
• XCF may be unable to successfully or timely consummate the New Rise acquisitions.
• The company may be unable to meet stock exchange listing standards.
• XCF may be unable to integrate the operations of New Rise and implement its business plan on its anticipated timeline.
• The proposed transactions may disrupt current plans and operations of BHAC or XCF.
• The company may be unable to recognize the anticipated benefits of the proposed transactions.
• Costs related to the proposed transactions could be higher than expected.
• Changes in applicable laws or regulations could impact the business.
• Extensive regulation, compliance obligations, and rigorous enforcement by governmental authorities pose risks.
• The company may be adversely affected by other economic, business, and/or competitive factors.
• The availability of tax credits and other government support is uncertain.
• Risks relating to XCF's and New Rise's key intellectual property rights exist.
• General economic conditions and other risks, uncertainties, and factors could impact the business.

Future Outlook

XCF aims to scale its SAF production from 38 million gallons in 2025 to over 150 million gallons by 2028, with plans to acquire additional sites and vertically integrate feedstock sourcing. The company anticipates benefiting from government tax credits and lower-cost financing.

Management Comments

• Carl Stanton (CEO, Focus Impact BH3): 'Weve had a vision of bringing to market a great company that is creating a positive impact for the world while developing world-class financial results.'
• Mihir Dange (CEO, XCF Global Capital): 'At XCF, we see tremendous growth potential from SAF and renewables and are very eager to help define the landscape.'
• Jade Liou (CFO, XCF Global Capital): 'We are combining our collective vision and experience with an ambitious growth strategy to chart a path through this frontier of energy transition.'
• Wray Thorn (CIO, Focus Impact BH3): 'Our partnership with XCF and their dedication to catalyzing the sustainable fuel industry is an example of our commitment to impact investing in companies that are great companies in part because of the positive impact that they are having for the world and where that impact can be an alpha generator to a companys financial success.'

Industry Context

The announcement comes amid growing global interest in sustainable aviation fuel as a means to reduce the aviation industry's carbon footprint. Government incentives and airline commitments are driving demand for SAF, creating opportunities for companies like XCF to expand production and capture market share.

Comparison to Industry Standards

• The document mentions the SAF Grand Challenge, which aims for 3 billion gallons of SAF consumption in the US by 2030, highlighting the significant gap between current production (14 million gallons in 2022) and future goals.
• The document references the International Air Transport Association (IATA) target to reduce absolute emissions by 50% by 2050, placing XCF's efforts within a broader industry-wide decarbonization push.
• The document mentions Axens North America, one of the industry leaders in process and catalyst development, to utilize Axens liquid full hydrotreating technology, indicating that XCF is using proven technologies.
• The document mentions a long-term agreement with an established Fortune 50 company who will be our feedstock and offtake partner for the Reno plant, which we are extending to include SAF, indicating that XCF has a strong partner.

Stakeholder Impact

• Shareholders of Focus Impact BH3 will have the opportunity to invest in a pure-play SAF producer.
• The merger could create new jobs in the renewable fuels sector.
• Airlines and other transportation agencies will have access to a sustainable alternative to traditional jet fuel.
• The environment will benefit from reduced carbon emissions from the aviation industry.

Next Steps

• Obtain regulatory review and Focus Impact BH3 shareholder approval.
• Close the New Rise Renewables acquisition.
• Seek fundraising opportunities.
• List the combined entity on the NASDAQ or the New York Stock Exchange.
• Expand SAF production capacity.
• Invest in SAF development opportunities.
• Scale the project management team.

Key Dates